Tuesday, January 20, 2009

Turbulence hits AirAsia's airport plan

Jan 20, 2009

KLIA operator's main shareholder trying to get govt to review go-ahead

By Leslie Lopez

KUALA LUMPUR: - The controversy over a plan by budget airline AirAsia to build its own airport is exposing a major problem that ails corporate Malaysia - how the dominance of state-controlled agencies often stifles entrepreneurship.

The wrangling also highlights the government's inability to rein in poor- performing public enterprises and pursue policies to maximise the use of resources, economists and bankers say.

Unless the government moves quickly to resolve the public feuding between state-controlled airport operator Malaysia Airports Bhd (MAB) and AirAsia, it could undermine the country's tourism sector.

'Especially in these times of crisis, the issue is how well does the country maximise its resources. Building a new airport to resolve this squabble isn't the solution,' said a CEO of a local stockbroking firm.

AirAsia, one of Malaysia's more successful private entities, says the current low-cost terminal located near the Kuala Lumpur International Airport (KLIA) in Sepang would not be able to cope with passenger and fleet growth by 2013.

AirAsia's aggressive chief executive Tony Fernandes predicts that the airline will handle 60 million passengers in four years' time and have a fleet of 184 aircraft.

He also says that MAB's plans to expand its facilities in KLIA will not be completed in time.

Since it would not have any say in the new facilities that MAB intends to build, AirAsia fears that landing and other charges could rise. It thus announced a plan to build its own airport to keep expenses low.

Prime Minister Abdullah Badawi's Cabinet had given AirAsia the green light for this new airport at Labu in Negeri Sembilan, roughly 8km away from KLIA. But that is just part of the story.

AirAsia had tried to negotiate a better deal with MAB, but why the latter did not try hard enough to keep its major customer happy remains a mystery. There are suggestions that the problem may be with MAB's main shareholder, government investment fund Khazanah Holdings. AirAsia's rapid growth has partly come at the expense of national carrier Malaysia Airlines, in which Khazanah holds a majority interest.

In recent weeks, Khazanah officials have lobbied senior Finance Ministry officials to get the government to review its decision on the Negeri Sembilan airport.

But this has received mixed reactions.

While proponents of Khazanah say that it is merely protecting its investments in MAB and Malaysia Airlines, others believe the investment agency is crowding out private enterprise. Khazanah dominates the national economy with controlling stakes in dozens of companies, such as transportation, medical services, finance, property and utilities.

Economists have long argued that this domination has led to inefficiency in policymaking, which is often skewed in favour of government-linked entities.

The turf war aside, there are strong arguments against a new airport. Detractors of the proposal say the KLIA was purpose- built to allow for another three satellite terminals. A new airport would also mean additional expenditure for transport infrastructure and duplication of resources.

What Datuk Seri Abdullah's administration ought to do is to play the role of referee effectively, analysts say.

If the government is of the view that a new airport would be a waste of resources, it should get MAB to negotiate with AirAsia, even if it means giving the latter wide autonomy to operate within KLIA. Under such an arrangement, the government would be able to protect its investment in the airport operator and at the same time allow AirAsia to grow profitably.


[Maybe AirAsia might do better from Singapore, but their market is Malaysia, and they still need to land at airports there. This is still typical of doing business in Malaysia, where politics crowd out commonsense and the common good.]

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